All financial regulations should be grounded firmly in empirical research. The reach of federal rules is too large not to proceed with extreme care and caution, particularly if rules disproportionately affect economically vulnerable Americans. When the CFPB announced its intentions to revise its small-dollar lending rule, some voices criticized the Bureau’s decision, expressing concern that the new rule might enable lending practices that create “debt traps.” But many, if not most, criticisms of small-dollar lending fail to ask several key questions about consumers who rely on this industry’s products: who uses small-dollar loans, how do they use them, and why do they use them? The 2017 rule, which the 2019 Final Rule would replace, noted that small-dollar loans are “typically used by consumers who are living paycheck to paycheck, have little to no access to other credit products, and seek funds to meet recurring or one-time expenses.”2 Far from solving demand for credit, destroying small-dollar lending would eliminate some of the few options available to millions of consumers, potentially driving them into the arms of less scrupulous lenders. This demand for small-dollar loans would persist even were the CFPB to regulate them out of existence. All this considered, it is our opinion that the 2019 Final Rule is good policy that will benefit consumers.
Read the full letter here.